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Hugh Pickens writes "The San Francisco Chronicle reports that last year a Long Beach law firm received an e-mail from a Hong Kong businessman seeking help collecting debts from American customers. After a month of signing paperwork and exchanging telephone calls, the attorney received word that one debtor had sent a $200,000 cashier's check to pay off his balance. The attorney deposited it in his firm's account, subtracted his $10,000 fee and wired the remaining $190,000 to his Hong Kong client. Then the attorney's bank called and told him the $200,000 check had bounced. 'They send me a nice, big, worthless check,' says the attorney. In this case, the bank was able to prevent the wire transfer from reaching its destination, but attorneys say they are on the receiving end of sophisticated scams with increasing frequency that include attacks to steal client data that can be sold or used to learn the details of future litigation."

I don't know if you understand how checks work, but they do take a little time to clear (i.e. for the money to be transferred from the issuer's bank to the receiver's bank). It's a hell of a lot faster than it used to be, but it still takes time.

If the check was generated in the same city then it will only take a few seconds to a few minutes to clear. Checks generated outside your region might take an hour or two, but it can take up to several days for these checks to clear. International checks and cash

But it's still up to the lawyer firm (or whoever the transaction targets) to hold on the repayment until they get information about that the check has cleared.

So if they don't repay the excess until then - it shouldn't be a big problem.

Yes and no. I've seen checks that cleared, but then were recalled 2-3 weeks after deposit (and these were domestic, not even foreign checks). It's quite possible for checks that have "cleared" to still be recalled -- it depends on the banks involved.

The solution is to receive payment via ACH debit. This means you initiate (with their written permission, make sure you have the signed docs for this) the withdrawal of funds from their account. Once you get the funds, you're in the clear... they cannot be recalled by the other party, and you did not need to give them your account details.

Are you serious???! An ACH transaction can be reversed up to 60 days after the next bank statement, if the customer reports it as an unauthorized electronic transfer. This is as it should be, since an account number is not a proof of identity. In theory, if you can show that the actual account holder did authorize the transaction, you're fine, but even in the best possible case the verification is all on you. Of course, in a case like the check case in the article where the business was transacted by ma

There is still a substantial impact from banks being allowed to unwind a transaction at their leisure. In the day and age when people can download a newly released movie from halfway around the world and have it on a DVD before it hits the store shelves (and occasionally before it even hits a public theater screen), there is no good excuse for not being able to say once and for all if a check is good or not within 24 hours.

There is no reason to accommodate the long gone need to send checks to the main branch via stagecoach and hear back a week or two later in the modern age. Banks should be required to verify and reserve the funds within a very short time and should at that point be unable to pull it back. If they are unwilling to join us here in the 21st century, let them assume the risks. So far, the only 19th century trappings they have cast off is their air of respectability and their drive to avoid any behavior that even looks like it might be improper. By charging more and more for less and less, they are becoming a big drag on the economy (which they have recently wrecked with little consequence to themselves).

That's possible. It all depends on how you transfer the funds. The problem with cheques specifically is that the bank will not guarantee them because they were not initiated by the sender, but by the depositor. It's always possible the depositor has fraudulently arranged the transfer. If there is fraud, the depositing bank is responsible for it, and thus they will not guarantee the funds.

If, however, you wire funds, it's the responsibility of the sending bank to arrange the transfer. If the wire transfer is

They COULD set up a system where they verify and reserve the funds at the bank the check is drawn on. They choose not to do so. That was understandable in the 19th and first half of the 20th century, but not today.

Of course, wiring funds shouldn't be all that expensive these days either. It's not like they have to maintain a telegraph system and brave the wild west with a cash box anymore.

More and more, the banking system is becoming sand in the gears of the economy. If they weren't so deeply dug in with su

They COULD set up a system where they verify and reserve the funds at the bank the check is drawn on. They choose not to do so. That was understandable in the 19th and first half of the 20th century, but not today.

Such a system already exists, but that has nothing to do with the problem that I laid out. The problem with cheques is that they are drawing funds. That is, the person who is receiving the funds deposits the cheque at his or her own bank (Bank A), which then sends a request to the bank where the f

So then there comes this question - why didn't they check if the check bounced before they wired back the excess?

Because retail banking is based on medieval rules. A check can bounce weeks after the fact: it's just a promise that X will pay $Y, not a real financial instrument that generically pays $Y.

The US has banking laws that require banks to make deposited funds available to you after N days, but that is NOT the same as you actually having completed the underlying transaction: unwinds happen, the mone

Classic scam:1, Scammer pretends to be a buyer for some fairly expensive product, e.g. a car2. Scammer sends false cashier's check to client3. Scammer asks to cancel the deal because of some crisis, offers to cover any expenses he's had and a compensation for wasting their time4. Many people will have compassion for their situation and agree to undo the sale5. They wire the reminder - maybe 90% of the purchase price - back6. The check sent in #2 bounces, the money returned in #5 gone and they're out a ton of money7. Profit, for the scammer. No ??? here.

Oh, close, but not quite what we were looking for. The correct answer was "The scammer wanted the car because it ran Linux", but we would have also excepted "You don't need to scam someone out of Linux because it's free."

A check? Really? On first buy? WTF?If someone new buys from me, he pays 100% upfront, or he can GTFO.Bank transfer, cash, or equivalent (where the money is in my hands and won’t go back without me saying to). That’s it.

A check? Really? On first buy? WTF? If someone new buys from me, he pays 100% upfront, or he can GTFO.

Which they also warn you against, because people take the money and disappear never to deliver. Nothing is really secure unless you have an escrow service that makes sure both the funds and the goods are transferred as intended, otherwise somebody has to trust somebody. In fact that's how professional second hand ebayers essentially make their business, they have the reputation that people feel comfortable selling to them knowing they'll get their cash and the reputation to feel comfortable buying from them

The party doing the paying is the bank, not you. For this reason, it's considered more secure than a personal check.

If you pay by cashier's check the money has already been debited from your account. There's no possibility that you'll give a check, receive merchandise, and then empty your account before the seller has a chance to deposit the check.

always wait for the check to clear before assuming that money is yours.

Thing is, there's no way to know when the funds clear without calling the bank every day...
Banks should have a customer level query system whereby a customer can determine which funds are truly theirs...sort of a cash caching system -- a "side" account that shows money not-yet-cleared, providing full details. It'd be relatively easy for a bank to set it up for their websites...what year are we in boys?

1 check is deposited2 excess funds are sent by Western Union to scammer. This prevents the scammed from holding and returning the check. For more info on this look up "flash money" in google inregards to cashing checks. Many scams use this flash money to convince the victim they got the money.3 small item is shipped to scammer or the sale is canceled.4 check comes back as fake to the victims bank5 victim lost the money sent and possibly the cell phon

So, basically, the attorney/law firm covered for the client's ability to pay? I guess things like this is necessary to make things run smoothly in business, but it still seems a bit... naive, especially when you've never met the client in person. And especially when it's a check. Instant wire transfers would have made this particular problem moot (obviously), but since the client just assumed they would accept a check they did it out of professional courtesy?

Instant wire transfers aren't really instant. Like in the example above. The lawyers sent a wire transfer, the check then bounced and the bank was still able to stop the wired money from reaching the scammers.

I bet the wire transfer showed up in the scammers account instantly, however the money lags that information in much the same way cashing a check works.

So had they had time to transfer money from that account, to another, they would have gotten away with it? You obviously can't take out that much money in cash that rapidly, but how far/where would you need to "bounce" the money in order to escape the chargeback? Numbered Swiss/Luxembourg accounts? Transfer of the money into some sort of easily-liquidated assets (stocks, etc.)?

I don't think that's the way it works. A wire transfer either goes through or it doesn't. The funds don't show up in your account until it goes through.

However, just because you tell the bank to go ahead with the transfer doesn't mean they do it right away, so there's still a chance to call them and tell them not to do it. Once they do it though, you're SOL.

The first time I get payment from a client I always wait to see if it clears before moving forward on a project.

You should know then that checks never clear. They just fail to bounce. That may not seem like much of a distinction but it is precisely the reason many of these frauds work. In the US the law specifies a maximum hold time on deposits before the bank must make funds available to you. So, as long as the check fails to bounce during that period of time the fraudster usually gets away with their scam. But eventually it does bounce, and that's when the bank comes back to the person who made the deposit and they take their money back - if there isn't enough cash in his account, they sue him for the difference.

I know a guy who was scammed out of an exotic car - the 'buyer' gave him a bogus cashiers check. His bank took nearly three weeks before notifying him that they were "having difficulties" processing the check. By then, the car was half way across the country and had already been resold to a used-car dealer. FWIW, his car insurance eventually paid out because the car was essentially stolen, albeit through fraud rather than the more common ways.

"So, as long as the check fails to bounce during that period of time the fraudster usually gets away with their scam. But eventually it does bounce..."

Then what is a bank for if not to validate a money transfer? If they tell you "Yes, the cheque has cleared. Yes it's your money. Yes, it isn't fraudulent", and then they come back several weeks later and say "Uh, actually, we were wrong", then why aren't *they* on the hook at that point for mistakenly validating a cheque that was bogus? Isn't it their job

You should know then that checks never clear. They just fail to bounce. (...) I know a guy who was scammed out of an exotic car - the 'buyer' gave him a bogus cashiers check. His bank took nearly three weeks before notifying him that they were "having difficulties" processing the check.

Trying to google around, there seems to normally be a 30 day limit for the customer to notify the bank of fraudulent checks towards their account and a 60 day limit for the banking system to bounce checks so it's not entirely unlimited. But who waits two months to see if the money is *really* good? And even so that is not a protection that you won't be sued for cashing a fraudulent check, only that they can't take it from your account anymore.

Correct - especially in US where the laws are missing / very lax for banks, not for consumers! The checks as any other money transfers, payments, etc in banks can / could be checked in seconds, happens and has happened since early 80's in some countries which don't depend on "clearing houses", etc but banks have to work their own money management. It is kind of funny in a sad way - the banks complain the cost of processing electronically - used to work with zero or very small cost using phone / people / wir

Or just to drive the point home: Cashier's Checks are worthless. They somehow feel justified in charging you a lot of money for them when in fact they mean absolutely nothing. Therefore, use wire transfer for large amounts. The transfer either occurs or it doesn't.

Don't I have to give out my account number for a wire transfer to happen? If people have my account number / routing number they can use it to buy stuff. How can I prevent them from doing that?

The only "guaranteed" option I can see is to open a new account for each wire transfer. This requires effort on everyone's part, unlike a cashier's check which only requires effort on the part of the buyer... but which is also worthless.

Don't I have to give out my account number for a wire transfer to happen?

Technically, you're giving out the same information either way. Write me a check, and you've just given me your routing number and account number - they're at the bottom of every check.

Psychologically, though, many people feel the same way; wire transfers are viewed as more intrusive, at least in the US. Sure, I'll sell you this car right now - just give me your bank account number and routing number. No? OK, you can just write me a

That's not true, because money is actually transferred. The "bounce" happens when the recipient's bank contacts the issuer's bank and the issuer's bank says "Who'sajiggawhat? We never issued that check (or the account doesn't exist, or whatever else the scam may be), we aren't transferring the money." The check did not clear, it bounced.

It's a verification process - if it passes the process the money is transferred, if it does not the money is not transferred. If the money is not transferred to the recei

The first time I get payment from a client I always wait to see if it clears before moving forward on a project. It's one of the reasons we require deposits before starting work.

Do you wait for it to actually clear, i.e. be verified as a valid check by the issuing bank, or for the funds to be available? One classic hallmark of these scams is relying on people to think a check is good because the banks release the funds after a few days (as required by law); the scammers then get insistent on getting payment wired or via money transfer so they get their funds before the check actually bounces. Local clients may not be an issue because you can find them, but the scammers are probab

I think the problem is that the check is a cashier's check. I've heard of marks in this scam going to the bank with the check in hand, suspecting it's a scam, but the bank teller/manager telling them that it's a good check, it doesn't need to clear in order to be valid/valuable. The check makes its way through the system, until eventually it reaches a dead end where the bank it's written "from" declines it, or says "no such account" or whatever. The cashing bank has no way of knowing at the time that it's a

There is no problem with cashier's checks, you just need to understand how the system works a little bit. You can put a hold on the deposit at the bank until the check clears, and simply not continue your transaction until it does. If you don't have a reason to completely trust the individual issuing the check, you should do this every time.

Cashier's checks are MUCH safer than personal checks, and are as safe or safer than credit. As lon

He did wait. His bank reported it as valid, and only after that did he send along the $190,000 to his client. Then the first check was bounced, _after_ his bank reported it valid. That's the root of a whole set of fiscal scams going on right now, the fact that banks report checks as "valid" that can still be voided by a malicisious check user after that point.

Once a bank tells you that a check you deposited is valid, the bank is now liable for that deposit. If the check ends up being fraudulent in this case, the bank is out the $200,000, not the customer who deposited it.

If we change the law so this is the case, banks will be a lot more thorough about checking the validity of deposited checks. Trust me.:)

Checks are outdated, and because of their age combined with the new technology of today, scammers are able to effectively use them for scams like this. However, people don't have a lot of choice but to use checks. For the individual, there's not really any way to effectively and cheaply transfer money.

We need a new money transfer system for individuals, something along the line of the ACH that businesses use (if you auto pay bills, that's how they are transferred). Something where when the transfer is autho

The problem is not exactly 'cost/availability'. It is more like 'greed/stupidity'. Such system exist and functions perfectly well in Europe, even in the somewhat more backward eastern parts. It is free or the costs are negligible for the typical consumer. All you need to do is know the IBAN of the other account and you can safely, quickly and cheaply transfer money. And this is not something that just happen. It has been in place for decades.

The problem you could end up with simply making banks responsible is that it would just slow things down a whole lot. So you tell the bank "You are responsible for any bad checks." The bank says "Ok, no problem." Then, you deposit a rent check from your roommate. It doesn't show up in your account the next day, nor the next week, nor the week after.

The law requires that funds be made available within 7 days (with a few exceptions), so unless that law goes away, putting the liability on banks will either res

Once a bank tells you that a check you deposited is valid, the bank is now liable for that deposit. If the check ends up being fraudulent in this case, the bank is out the $200,000, not the customer who deposited it.

If we change the law so this is the case, banks will be a lot more thorough about checking the validity of deposited checks. Trust me.:)

Except the bank probably only released the funds; they didn't say the check was good. Many US banks will release funds before the check is eventually discovered to be good; people unfortunately think the check is good and that's the root of the scam.

Of course even more refuse to release funds even though they know the check is good. They will not hesitate to put a two week hold on a check and keep it there even if the correspondent bank has removed the funds from the drawing account and credited the bank where the check was deposited after a single day.

That being said, there are very specific rules about how long each type of check can be held. Cashier's checks are subject to short times because it is assumed that one bank can tell if another bank's check is bad. After all, it really only takes a phone call and typing a few numbers into a computer to find out if the a bank issued the check. It is poor systems, incompetence and weak international interfaces that make this kind of thing possible.

Oh and as for changing the rules forget it. The banks have more money, motivation and personal influence with the government than you ever will. Even minor unfavorable changes to their governing laws are now only possible for a brief period in the wake of the recent record breaking financial collapse and scandal. They will be this way until well after you are dead and gone.

So how does a person determine that a check is _actually_ good, so they can avoid these problems?

The only way I know of is to present the check to the issuing bank to cash it and the bank / company have a positive pay agreement; even then I'm not sure if that fully protects you. Probably the best bet is to take the check to a bank manager and get their input on what to do to ensure you don't get stuck; of course too good to be true deals or ones that just don't feel right are a tip off as well. For example, if you get a check for too much offer to return it for correction; a fraudster would come up w

If we change the law so this is the case, banks will be a lot more thorough about checking the validity of deposited checks. Trust me.:)

Since 99.99% of cashier's checks clear, you will end up harming the economy far more than you protect it, because banks will start withholding otherwise valid transfers for up to 30 days while the checks clear. Frankly, that would be devastating for the flow of business.

What you suggest is a naive over-reaction to a problem that can be correct with just a little care on the part of individuals receiving cashier's checks. The system in place already works great, and instead of shoving your opinion down eve

Banks will go ahead and transfer money into the depositor's account before the cashier's check clears if the check appears to be valid (i.e. is not obviously counterfeit), because 99.99% of the time they do clear and it's just efficient business.

You can, however, request a hold on the check and have the bank wait until the check actually clears before the bank transfers the money to your account. If you've never done business with an individual who is issuing you a $200k check, a hold is

Doesn't help in US and maybe in some other countries - in most countries it would then be the banks problem / loss but I digress. I have had the transactions reversed after 3-4 weeks in US banks because they (the clearing house - what a joke!) failed in process! One reason not to use the US banks for small transactions - big / enterprise / government transactions are handled differently. $200K is not big, by the way.

I once had a deposit pulled back out after a year and a half. The check had processing stamps on it just a few days old and the stamps were on top of a shoe print. Apparently rather than processing the check, they dropped it on the floor and under something for over a year and somehow managed to miss that the accounts didn't balance.. The person who wrote the check had closed the account and moved in the interval it sat on the floor (I doubt it was fraud). Since it was over 60 days, the bank put the deposit

He did wait till it hit his account, that's where the scammer (almost) got him. Banks will release the funds for a cashier's check before the check clears, allowing to you go about your business as usual. This is generally a safe practice, but if the limbo period is a long time there is the potential to be scammed.

Cashier's checks are practically safer than cash. The bank teller will check to see if it is counterfeit, and if it is not (or if it is a very good counterfeit) the bank will release the funds

And so you too would have gotten taken by this scam. They received a cashier's check (aka bank cheque) and their bank accepted it. They, like you, believed that an accepted bank cheque was as good as cash so they wired the refund (which, FYI, is the same as cash, since you can't take it back) and got stuck.

Wired money transfers and cashier's checks are essentially the same thing. Wired transfers are initiated by the payer at his bank, while cashier's checks are initiated by the payee at his bank.

In BOTH cases money is taken from the payer's account immediately. There is no way for a legitimate cashier's check to bounce, and there is no way for a legitimate wire transfer to bounce. You must have sufficient funds before the transaction can even be requested, and they are removed immediately.

A lot of stuff can bounce in practice if fraud is involved, even if there are supposed to be guarantees. I think the lesson here is that you better leave the money laundering to the big guys who can better deal with the risk.

The American Bar Association reported on this mere 17 months ago. [abanet.org] I think it's less remarkable that some California firm got bilked as much as they got swindled while ignorant of a direct warning from their prime industry trade journal.

A more compelling version of the scam, to me, is overpayment of retainer fees as a new client. Fortunately, only idiot California firms are vulnerable as the ABA has warned about this variation as well. [abajournal.com] Interestingly, though, the tab appears to have been $500K in that one.

I too have a local office with local clients and I also have no experience in business law, debt collection, international transactions, or the like. When I first received one of these requests I was skeptical, googled the language and learned the offer was a scam.

The English is mostly believable -- there are errors but of the kind even educated non-native speakers make. Indeed, I've read materials written by non-native college grads which is much less clear than what I see in these scams. Anyway, for

It starts with an email from a potential "client." They say they want to book you from overseas. Offer to send you a check, send a check for more than your fees, and ask you to pay for the invitation printer (or whatever) for them.

On my end, more small potatoes then the case ITA, this scam is easy to spot. The people don't act like a real wedding client, they don't want to talk on the phone, they don't know how to discuss wedding packages, they make have bad grammar etc... You can spot this long before they get to the ask.

For a long time, as soon as I had two or more tale-tale signs, I would quit the conversation. Then I got a PO Box. Now, I drag it on as long as possible (unless I'm extra busy that week). I like to see the look of the fake checks, and I like to waste their time.